Surety Bonds
Surety bonds are three-party financial guarantees where a surety (insurer) promises an obligee (client) that a principal (contractor or business) will fulfill contractual obligations. If the principal defaults, the surety pays valid claims up to the bond amount and seeks reimbursement from the principal. Unlike traditional insurance (where the insurer bears the loss), surety bonds emphasize performance assurance with low claim rates, as sureties underwrite the principal's ability to perform.